Oman’s real GDP will growth will quicken to 4.5 per cent in 2015 from 4 per cent in 2014 due to strong non-oil growth, particularly in tourism and manufacturing, according to a report published by the National Bank of Kuwait published today.
“Non-oil activity will be driving Oman’s growth in the coming years,” NBK says. “(T)he Omani government has opted to manage its crude oil reserves by limiting production, shifting its focus to diversifying its economy.”
NBK says that the public deficit is expected to widen as investment expenditures begin to take off and revenues recede because of declining oil prices. “A contraction in the current account surplus is expected on the back of a growing energy import bill,” NBK says.
“Credit and the stock market are expected to benefit from the boost in aggregate demand, the latter supported by the $30 billion worth of projects to be executed over the coming years,” NBK says. “This is sizable compared to an estimated GDP size of $80 billion for 2013.”
NBK said that oil production increased by 2.6 per cent in 2013 to 942,000 barrels per day (b/d).
“It is expected to grow at a tepid pace this year and the next; the government announced its intention to maintain oil production between 950,000 and 960,000 bpd for the next five years,” NBK said. “An increased use of gas-intensive enhanced oil recovery practices will be needed to achieve this extraction rate given Oman’s ageing wells.”
“Oman is investing in new gas reserves that could help boost output,” NBK says. “Current readings of gas production point to continued decline with average daily output contracting by 8 per cent during the first half of the year.”
NBK says that gas imports will still be needed even after the completion of the BP Khazan tight gas projects. “Oman is talking with Iran on building a new gas pipeline that would help loosen supply constraints,” NBK says.
Consumer price inflation expected to average 1.5 per cent in 2014 and 3 per cent in 2015.
“The real estate sector is expected to drive future inflation up,” NBK says. “Recent housing data revealed that the traded value of properties in the sultanate has almost doubled in 2Q14 from a year ago. In addition, Oman’s population has grown exponentially in recent years, topping 4 million inhabitants in April, and is expected to continue to attract foreign workers despite recent limiting measures.”
Expected growth in expenditures to shrink fiscal surplus
NBK forecast that total government expenditure may grow by 5 per cent a year. Oman is expected to be in deficit by 2015, and to break even in 2014.
“The current account surplus is projected to decline over the forecast period,” NBK said. “Weaker oil prices and growing energy needs are expected to hold back growth in the trade surplus. The services deficit will continue to expand, albeit at a slower pace as projects aimed at boosting tourism and transport come to fruition. An increasing expatriate population will see remittances grow, thus widening the transfers deficit.”